Record profit for banks as rates rise

The total interest hoovered up by the banks from households and businesses is on track to top $5 billion a quarter as home loan interest rates rise, KPMG says.

Rising mortgage rates are contributing to a national cost of living crisis, and data from the Reserve Bank Te Pu¯ tea Matua showed at the end of April that just under $110b of home loans would come to the end of their fixed term before April next year.

Borrowers refixing in the next three or six months, were likely to get rates starting at 5%, or 6%, said John Kensington, head of banking and finance of KPMG.

‘‘Probably a third of people have refixed their loans. There’s still two-thirds to go through that process,’’ he said.

KPMG’s quarterly survey of the finances of banks shows that in the first quarter of the year, banks posted record profits.

They had combined interest income of $4.6b, up from $4.1b in the third quarter of last year, and looked set to power past $5b a quarter. ‘‘I will be very interested to see next quarter’s results,’’ Kensington said. ‘‘I could see it getting up very close to that $5b, if not slightly over it,’’ he said.

And the quarter after, it could go higher still. Painful as breaking the $5b mark will be for households, it is territory they have been in before, data shows.

At the start of 2020, before Covid arrived in the country, banks were collecting over $5b in interest a month, but then the Reserve Bank slashed interest rates in a bid to prevent a recession and an unemployment crisis. Kensington said the Reserve Bank’s fight to beat off a possible Covid recession had put a lot of money into the system.

‘‘That money has got to come out of the economy,’’ he said.

Banks’ earned another record quarterly profit in the first three months of this year, Kensington said, with an 8.08% increase in net profit after tax to $1.74b. Banks had cut costs, and increased lending margins, KPMG reported.

The introduction of tougher responsible lending regulations may have contributed to bank customers becoming ‘‘stickier’’, and being less willing to move from bank to bank after better deals, Kensington said.

Banks’ loan books continued to grow at a rate of around 5%-a-year, which should see banks’ run of record profits continue, Kensington said. But, ‘‘I don’t think our banks are making super profits,’’ he said.

It’s not only the higher interest bill households face that makes for worrying reading. KPMG identified a slight tick-up in bad debts, indicating a rise in borrowers in financial dire straits. He said banks’ loan book growth may reflect not just new lending, but also a slowing of borrowers repaying their loans faster than banks required.